Federal Court in New York applies existing law to find foreign cryptocurrency and blockchain defendant subject to court’s jurisdiction

A federal court in New York recently issued a decision finding that the court could exercise jurisdiction over non-US cryptocurrency and blockchain corporate defendants based on only three transactions between those companies and a New York resident.

The case

In Alibaba Group Holding Lt v Alibabacoin Foundation, the court enjoined the non-US defendants from using a non-US plaintiff’s trademark.

Plaintiff Alibaba sued the Dubai - and Belarus - based defendants for using its US trademarks to market their cryptocurrency, “AlibabaCoin.” When Alibaba moved for a preliminary injunction, the defendants argued, among other things, that the court had no jurisdiction over it.

The requirements for jurisdiction

The court disagreed with the defendants and granted the injunction.

The defendants argued that the court lacked jurisdiction because the defendants were not based in the United States. The court explained, however, that New York federal courts have jurisdiction over defendants if exercising jurisdiction comports with New York state law and the Due Process Clause of the US Constitution.

Under these provisions, jurisdiction is appropriate if, among other things, a foreign defendant:

  • “transacts business” in New York,
  • the transaction is “purposeful”; and
  • there is a “substantial relationship between the transaction and the claim asserted.”

The court found all three requirements satisfied, based on three debit card transactions involving cryptocurrency that the defendants entered into with a New York resident.

Jurisdiction at the location of the transaction – not the servers

The defendants argued that the transactions did not happen in New York because the sales consisted of blockchain-based ledger entries made in Belarus.

The court, however, rejected this argument, noting that:

“it would strain common usage to say that the transaction occurs at the potentially more remote location of the servers that process the buyer’s banking activities and not at the location where the buyer clicks the button that commits her to the terms of sale.”

The court further explained that this finding was consistent with prior court decisions involving debit card transactions. 

What happens next?

This decision demonstrates that federal courts will likely continue to apply traditional principles of personal jurisdiction to emerging technologies and related transactions, and that non-US defendants involved in such technologies remain vulnerable to US jurisdiction when they transact with US parties.